Page 649 - Krugmans Economics for AP Text Book_Neat

Tackle the Test: Free-Response Questions
1. Draw a correctly labeled graph showing a perfectly competitive 2. Draw correctly labeled side-by-side graphs to show the
firm in long-run equilibrium. long-run adjustment that would take place if perfectly
competitive firms were earning a profit.

Answer (7 points)
Price,
cost

MC Section 11 Market Structures: Perfect Competition and Monopoly

ATC
MR = P = D

Q* Quantity

1 point: Axes are correctly labeled.
1 point: Demand curve is horizontal and labeled with some combination of “P,”
“MR,” or “D.”
1 point: Marginal cost curve is labeled and slopes upward.
1 point: Profit-maximizing quantity is labeled on horizontal axis where MC =
MR.

1 point: Average total cost curve is labeled and U–shaped.
1 point: Average total cost is equal to price at the profit-maximizing output
1 point: Marginal cost curve crosses the average total cost curve at the lowest
point on the average total cost curve

module 60 Long-Run Outcomes in Perfect Competition 607